Life After Obamacare

All eyes are now on the US Supreme Court, which is soon to hand down a decision on the constitutionality of "Obamacare", the health care reform law passed by the Obama Administration back in 2010 after a year. The vast majority of people expect the US Supreme Court to hand down its decision some time in the last days of June 2012, yet the ruling could, in theory, come any time between now and November 2012.

According to Intrade, there is a 77% chance that the mandate will be struck down by the high court. However, the probability that the rest of the law will remain intact will depend heavily on when the ruling is handed down as a couple of charts of the S&P 500 will show:

Scenario 1 -- Health Care ruling handed down in June 2012 (Optimistic scenario)

Bear market rallies end on good news, and a Minor degree bear market rally should end on great news. We are on the verge of completing Minor wave B up (Oct 2011 - June 2012) of Intermediate wave (W) down, so a Minor degree bear market rally is about to wrap up if nor already completed.

A scenario where the mandate gets struck down, but the rest of "Obamacare" is left intact would be seen as great news by the American people, especially those that have already benefited from the new law. A scenario where a ruling in favor of "Obamacare" takes place as Minor wave B up reaches completion would work very well for a Minor degree bear market rally ending on great news.

Scenario 2 -- Health care ruling handed down in October / November 2012 (Pessimistic Scenario)

There has been a lot of debate about what would happen if the US Supreme Court strikes down the entire law. The issue has been debated on CNBC, Yahoo news, and Huffington Post, as well as countless other places. One thing that is certain is that if the entire law is struck down, the fallout would be massive as millions, if not tens of millions of Americans that have already benefited from the law will suddenly have the rug pulled out from under them. Given the bearish social mood that is in play now, this is a recipe for a backlash and even a full blown panic. There are already predictions of a full blown panic if the entire law is struck down as outlined in the KevinMD.com article, making the case that the panic could hit doctors and providers as well.

There are already a number of economists and analysts that see striking down the entire law as bullish for the stock market. If the entire law is struck down, the ruling would most likely be handed down in the October / November 2012 time frame when the center of Minor wave C down is in play with a bearish Intermediate degree "point of recognition" reached shortly afterwards. The result, of course, would be the "Panic of 2012" as a massive backlash unfolds in the aftermath of the ruling.

No one knows when the US Supreme Court will hand down its ruling on the constitutionality of "Obamacare". Although the outcome of the ruling will certainly matter for the millions of Americans that are benefiting from the law in the short term and the intermediate term, the outcome won't matter on the longer term. The health care in the United States is on an unsustainable path with an insurance death spiral currently unfolding. As I demonstrated here and here, it is only a matter of time before the entire health care system collapses with the collapse most likely to take place between 2015 and 2020, and the collapse will happen regardless of which way the US Supreme Court rules on "Obamacare".

The Future of US Healthcare

All eyes are on the US Supreme Court as the Affordable Care Act, better known as "Obamacare", is now currently under deliberation. The opening arguments started yesterday with more to come in the days ahead. Given the amount of coverage in the mainstream media in the last few days, one would think that the outcome of the court case would set the tone for the health care system going forward. The US Supreme Court is expected to make its final ruling on the ACA around June 2012 although it could occur any time between now and the November 2012 election.

There is a very strong case to be made that regardless of how the US Supreme Court rules on the ACA, that the future path of the US health care would lead to the same outcome in both cases -- the US health care system will collapse some time between 2015 and 2020. The US health care system is on an unsustainable path as a full blown insurance death spiral is now unfolding.

Back in September 2011, the implications of a full blown insurance death spiral were spelled out in an earlier blog entry in which the end result is a collapse of the health care system in 2017 when health insurance premiums for a family start to exceed the median household income. The previous evaluation was based on the Primary wave [3] down count. The current main count (complex structure for Supercycle wave (a) with Cycle wave x now unfolding) does not change the eventual outcome of the health care system, only the timing of the collapse.

Even if "Obamacare" were to be upheld by the US Supreme Court, the insurance death spiral will still unfold in full force. The vast ocean of money needed to provide subsidies to help people afford health insurance won't be available as the flow of tax dollars to the federal government will have substantially dried up (from current levels) by the time the subsidies and exchanges go into effect in 2014.

The key to the insurance death spiral is health insurance premiums relentlessly rising relative to wages, making coverage more and more unaffordable over time. Even now, there are 50 million Americans without health insurance with that number certain to keep growing in the future. An article published on Annals of Family Medicine makes a projection that health insurance premiums for a family will be equal to the median household income by 2033. The outlook depicted in the article is considered an optimistic outlook as it assumes that incomes will continue to rise in the future. The critical point will be reached much sooner than projected in the article because wage deflation (which has been unfolding since 2000) will accelerate the death spiral as people drop their coverage as premiums become more and more unaffordable. A combination of wage deflation and rising premiums will result in health insurance premiums for a family exceeding the median household income no later than 2020.

The insurance death spiral is starting to be recognized by a number of people. Even fewer people recognize the larger picture -- health insurance companies, hospitals, clinics, and pharmaceutical companies, are all connected together in which corporate greed in each sector plays its part in the larger US health care industry in which the cost of health care soars into the stratosphere and currently taking up 20% of the US GDP. The US healthcare system is also being characterized as an economic bubble as an excellent case for such characterization is made on "The Bubble Bubble" blog.

Death spirals and bubbles, despite their differences in how they are fueled, both ultimately end in a bust. The US health care system is on an unsustainable path and a collapse is in the near future regardless of how the US Supreme Court rules on "Obamacare" this year. When the health insurance companies collapse (when the death spiral goes bust), it will set off a chain reaction within the entire health care industry in which hospitals close their doors within 6 months, clinics close their doors within a year, and pharmaceutical companies close their doors within 18 months at the most. The chain reaction of events will bring about the collapse of the entire health care system.

A collapse of the current US health care system during the Grand Supercycle degree bear market is nature's way of purging one of the things that stands in the way of the future growth of the United States. There cannot be real and meaningful health care reform until the current health care system implodes as the health insurance companies and their lobbyists, as well as private hospitals and pharmaceutical companies and their lobbyists -- as it stands now -- have too much power and influence over government for meaningful reform to be possible. When the current US health care system implodes, the door will be open to rebuild the nation's health care system from the ground up without the hindering influence of corporate lobbyists.

A Death Spiral in Health Care

There is now unmistakable evidence that a death spiral is in progress in health care, particularly health insurance premiums. The death spiral is in its early stages. Both bubbles and death spirals end the same way -- they both end in a bust. The bear market will have a strong influence on how fast the death spiral unfolds in the years ahead.

While bubbles are motivated by exuberant optimism, death spirals are motivated by a combination of greed on the part of insurance companies and people dropping their coverage because they can no longer afford it. They differ in how they are fueled, but they both end the same way once they go critical.

According to the latest report from the Kaiser Family Foundation, health insurance premiums rose 9% last year with health insurance premiums for family health benefits exceeding $15,000 a year. Health insurance premiums have risen 113% since 2001, much faster than the rate of consumer price inflation. There has been a lot of speculation that health insurance companies are raising premiums at a fast clip in anticipation of new rules under "ObamaCare" that go into effect in 2012, which would require health insurance companies to justify annual premium increases of over 10%.

Even if premium increases were to be limited to 10% a year starting in 2012 due to a constraint implemented by "ObamaCare", a death spiral could still unfold. What matters is how fast premiums are rising relative to wages. Wage deflation has been unfolding since the bear market started in 2000. As the worst part of "The Great Deflation" starts unfolding with Primary wave [3] down (2011 - 2016), deflation will unfold in full force, which includes wage deflation. In the coming years, as "The Great Deflation" unfolds in full force, wages are likely to fall around 25% a year. The result is that health insurance premiums rise 35% a year relative to wages starting in 2013.

The death spiral is still in its early stages, but we are already seeing the effects of the death spiral as rising health care costs are resulting in people (even those that have coverage) putting off necessary health care. Medical bills are already blamed for 62% of the bankruptcies that are filed, and in 78% of the cases, the person had health insurance. The death spiral in health care is already recognized by a number of people.

The more devastating effects of the death spiral are still in the future. Once the effect of "The Great Deflation" is factored in, it is very clear that "ObamaCare" cannot stop the death spiral. A combination of wage deflation, rising unemployment, and taxpayer dollars drying up at every level of government will render "ObamaCare" ineffective as the vast ocean of money needed to provide subsidies to help people afford coverage starting in 2014 won't be available. Rising unemployment and wage deflation will have the effect of causing people to drop coverage as it becomes unaffordable, which will accelerate the death spiral.

By 2017, health insurance premiums for family health coverage will be around $58000 a year in today's terms and $26500 a year in nominal terms. This underscores the amplifying effect of a deflationary collapse on a death spiral. This would be the point where the death spiral goes critical. The Great Depression resulted in insurance companies imploding back in the early 1930s. In the same way, "The Great Deflation" will result in the collapse of health insurance companies in 2017. Once the health insurance companies go under, the entire health care system will rapidly unravel as hospitals, clinics, and pharmaceutical companies go under in quick succession as revenue dries up. The health care system in the United States will collapse in 2017.

There is good that will come from the collapse of the current health care system. Bear markets act to purge everything that stands in the way of future growth and prosperity. Back in late April 2011, I predicted that the collapse of the current "for-profit" health industry will lead to the implementation of a single payer system at the federal level in 2022. I still think that a single payer system is in the future after the current deflationary collapse ends.

Single Payer in 2022?

In the last few days, all eyes have been on the fallout in the town hall meetings as constituents express their anger over the GOP in the House voting to end Medicare for all practical purposes. Even as the Primary degree bear market rally continues in its final stages, the undercurrents of negative social mood are already coming to the surface. The town hall meetings have received a lot of news coverage. Some sources follow:

1 -- MSNBC - House Republicans Regroup amid Medicare Anger
2 -- Daily Kos -- Anger on Display at Republican town hall meetings over Medicare and taxes
3 -- Think Progress -- Bedlam erupts in town hall in Orlando

There is a political aspect to the development as well, and the Democratic Party has wasted no time going after the GOP for the anti-Medicare vote. As I indicated in an earlier post, no democrat voted for Rep. Paul Ryan's anti-Medicare bill. Now, the Democratic Party has already started putting out ads calling out the GOP in the House for the vote, as detailed here.

There is a larger term picture unfolding, which goes back to 2009 when the Obama Administration initiated the campaign for health care reform in the United States. There is more information about the health care reform process here. While the health insurance companies focused all of its efforts trying to defeat "Obamacare" through lobbying, the real nemesis -- deflation -- was lurking underneath the surface, poised to wreck havoc upon the resumption of the larger downtrend. It's a lot like the scene from the movie Pitch Black when Riddick says, "it isn't me you should be worried about" as darkness engulfed the landscape.

The true threat to health insurance companies isn't "Obamacare", its deflation. The last time we had a deflationary collapse, insurance companies imploded. When the worst part of "The Great Deflation" starts later this year with the commencement of Primary wave [3] down, wage deflation will create an insurance death spiral that will eventually cause the health insurance companies to collapse by 2017.

I am going to make a bold prediction here. We will get single payer implemented in the United States in 2022. After "The Great Deflation" ends, we will have a long reprieve period. The Democratic Party will have control over the United States government at that time, and with the health insurance companies out of the way, it will be very easy to get a single payer health care system passed. The trend has already started as the state of Vermont is actually working on such a system even now.